The power sector, which is heavily dependent on coal, could see a 0.6 to 1.5 percent increase in supply costs, according to ICRA, which could potentially lead to higher retail tariffs. In addition, primary aluminium producers would also be affected due to their high electricity consumption.

“The imposition of the new mining cess by key mineral-rich states may increase cost pressures for the steel industry. Although most states are yet to finalise the rates, any significant cess could negatively impact margins, particularly for secondary steel producers, as mining companies are expected to pass on the increased costs,” said Girishkumar Kadam, Senior Vice President and Group Head, Corporate Sector Ratings, ICRA.

The recent Supreme Court verdict has brought renewed focus on the Orissa Rural Infrastructure and Socio-Economic Development Act, 2004, which, according to ICRA, allows 15% royalty on iron ore and coal. If fully enforced, it could lead to an 11% increase in the cost of iron ore, which would directly impact the cost competitiveness of domestic steel companies.

In a similar move, the Jharkhand government recently imposed a hike of Rs 100 per tonne in iron ore and coal prices, setting a precedent that other states may follow. This hike is expected to have minimal impact on the operating margins of steel companies, reducing them by 30-40 basis points.